Homeodomain factor Nkx2-5 is a central component of the transcription factor network that guides cardiac development; in humans, mutations in NKX2.5 lead to congenital heart disease (CHD). We have genetically defined a novel conserved tyrosine-rich domain (YRD) within Nkx2-5 that has co-evolved with its homeodomain. Mutation of the YRD did not affect DNA binding and only slightly diminished transcriptional activity of Nkx2-5 in a context-specific manner in vitro. However, the YRD was absolutely essential for the function of Nkx2-5 in cardiogenesis during ES cell differentiation and in the developing embryo. Furthermore, heterozygous mutation of all nine tyrosines to alanine created an allele with a strong dominant-negative-like activity in vivo: ES cell<-->embryo chimaeras bearing the heterozygous mutation died before term with cardiac malformations similar to the more severe anomalies seen in NKX2.5 mutant families. These studies suggest a functional interdependence between the NK2 class homeodomain and YRD in cardiac development and evolution, and establish a new model for analysis of Nkx2-5 function in CHD.